ACCOUNTANCY PHILIPPINES

DAILY REVIEW FOR AFAR

June 04 2020

Q1. Average
During liquidation, the remaining noncash asset of the partnership was sold for 650,000.
Partner Alvin shares 20% in the profit and loss. His capital before and after the sale is 150,000
and 140,000 respectively. The noncash asset sold is 30% depreciated. What is the original cost
of the asset sold?

Answer: 1,000,000
(150k-140k=10k/20%=50k + 650k=700k/70%) =1M

Q2: Average
During the second year, the following information was made available:
Contract price........................10M
Construction in progress........4M
Estimated cost to complete...3M
What is the cost incurred to date?
A. 1M
B. 2M
C. 2.3M
D. 3M

Answer: B
4M/10M=40% (POC %) 3M/ (100%-40%) = 5M - 3M = 2M

Q3: Easy
A standard which guides the proper accounting for revenue from contracts with customers.
(Phil. Version)

Answer: PFRS 15

Q4: Easy
NCOV Corporation purchased 100% of Virus Corporation's net assets for 1.35M.
At the time of acquisition, Virus assets and liabilities were properly valued as follows:
Assets..........................1.46M
Liabilities......................120k
How much is the goodwill/bargain purchase gain? (Specify)

Ans: 10,000 - Goodwill (1.35M - 1.34M)

Q5: Difficult
PalugiNah Corporation has already filed a bankruptcy notice due to continuous losses since its
inception. Data about its assets and liabilities are as follows:

Assets at realizable values:

Cash....................................125,000
AR........................................250,000
(Pledged to Notes pay)
Merchandise inv.................560,000
Prepaid insurance................80,000
Equipment..........................400,000
Machinery...........................540,000
(Pledged to mortgage)
Delivery truck.....................320,000

Liabilities:
Salaries..............................170,000
Taxes..................................105,000
Accounts payable.............400,000
(Secured by Merchandise)
Notes payable...................300,000
w/ 12% interest pay.
Loans payable...................220,000
(Secured by 50% of truck)
Mortgage payable............800,000
Determine the estimated rate of recovery for unsecured claims.

Answer: 100%

Net free assets: (845,000 - 275,000) = 570k (exclude PI)

Divided by Unsecured liabilities...........406k
=Est. recovery............100 %( must not be in excess of claims)
Q6: Average (Adapted)
Occasionally a franchise agreement grants the franchisee the right to make future bargain
purchases of equipment or supplies. When recording the initial franchise fee, the franchisor
should
A. Record a portion of the initial franchise fee as unearned revenue which will increase the
selling price when the franchisee subsequently makes the bargain purchases.
B. Increase revenue recognized from the initial franchise fee by the amount of the expected
future purchases.
C. Defer recognition of any revenue from the initial franchise fee until the bargain purchases
are made.
D. None of the above

Answer: A

Q7: Easy
GAM and NGAS stand for?

Answer: Gov't Accounting Manual/New Government Accounting System.

Q8: Easy
A Partnership has total assets of 500,000. It was agreed by the parties to the contact that
partner Natoy will retire. He is to be paid a total amount of 75,000. Before his retirement, the
assets were revalued at 580,000. Natoy's capital were 50,000 before the assets were revalued
and he shares 15% in P/L.
What was the total goodwill recognized in the book?

Answer: 86,667 (75k - 62k) =13k/15%=86,667

Q9: Average
During the second year, the following information was made available:

Contract price........................10M
Construction in progress........4M
Estimated cost to complete...3M
If the gross profit recognized during the first contract year was 973,567, what is the gross profit
recognized this year?

Answer: 1,026,433 (10M x 40% = 4M - 2M = 2M - 973,567)

Q10: Difficult
Oreo and Rebisco are partners with capital contributions of 240,000 and 260,000 respectively.
They agreed to to admit Skyflakes as their new partner who will be credited a capital interest at
20%, the latter will invest a cash of 75,000 and a furniture with fair value of 40,000. The bonus
credited to the new partner is equivalent to 40 times the net income of the partnership prior to
the admission of Skyflakes and the partnership had profit margin before tax of 10%.
Assuming a tax rate of 30%, what was the Sale of the partnership before the admission of
Skyflakes?

Answer: 4,571,429
Bonus (123k-115k) =8k (8k*40)/70%/10% = 4,571,429

Q11: Easy
Contingent liabilities arising from business combination are not recognized. T/F

Answer: False

Q12: Average
The following are available in the records of Laguna Corp.

Actual direct labor rate.............5.8

Std. direct labor hrs.................20,000
Direct labor rate variance-F.......4,200
Actual direct labor hrs.............21,000

Additional info:
Total material std. cost
(125% of total labor std cost)
Material price variance-U........10,000
Material quantity variance.......0
Actual material cost/unit.........3

What is the actual quantity of materials purchased?

A. 34,667
B. 52,333
C. 45,667
D. 53,333

Answer: D (120,000*1.25 + 10k=160k/3=53,333

Q13: Easy (Adapted)

Shaking Pizza purchased merchandise from a foreign company for 6,500,000 foreign currencies.
Payment for the inventory occurs on May 15. The exchange rate is 1 FC=P.029 on March 15 and
1 FC=P.025 on May 15. What is the credit to cash when the entity pays for the inventory on
May 15?

Answer 162,500 (6,500,000*.025)

Q14: Difficult
In its 5th year of operation, Vine Corporation established a branch in Cebu. The following
transactions occured during the year:
- The branch realized a net income of 15,000 which the home office did not recognize yet.
- The home office allocated some of its operating expenses to its branch amounting to 20,000.
The allocated expenses were not yet recorded in the branch books.
- The home office sent merchandise to the branch at a cost of 12,000 which the branch had
already recorded.
- The branch collected an accounts receivable of the home office amounting to 27,000 which
the home office had not recorded yet.
- Home office current: 480,000
- Investment in branch: 520,000

The branch manager suspects that an employee responsible for keeping the merchandise
received from the home office was stolen by him (the employee)
How much is the merchandise stolen?

Ans: 62,000
HOC: 480k + 20k=500k
IIB: 520k +15k + 27k=562k
Difference (stolen merchandise) 62k

Q15: Easy(Adapted)
Paolo has a bonus as part of his partner profit allocation. The bonus is based on the partnership
net income. Paolo receives a bonus equal to 5% that the net income exceeds 150,000. If the net
income in the current year is 180,000, how much bonus does Paolo receives?
Answer: 1,500 (180k-150k) =30k*5%=1,500

Q16: Average (Adapted)

The partnership contract of KC and CK provides that each partner shall receive a 10% interest
on the basis of their weighted-average capital balances. A summary of the capital account of CK
for the year ended 12/31/20x5, is as follows:

Bal-01/01.............................420,000
Addt'l investment,7/1.........120,000
Withdrawal, 8/1.................. (45,000)
Balance,12/31.....................495,000
If the average capital of CK is 61.5% of the total average capital balances of both partners, what
is the amount of interest to be credited to KC?

Answer: 28,875 (461,250/61.5%*38.5%=288,750*10%=28,875)

Q17: Average (Adapted)

Pacific Mushroom burgers Inc. charges an initial fee of 70,000. Upon the signing of the
agreement (which covers 3 years), a payment of 28,000 is due. Thereafter, three annual
payments of 14,000 are required. The credit rating of the franchisee agreement signed on May
1, 20x5, and the franchise commences operation on July 1, 20x5.
The amount of franchise revenue on May 1, 20x5 assuming no future services are required by
the franchisor once the franchise starts operations?

Answer: 0

Q18: Easy
A separately identifiable financial structure, including separate legal entities or entities
recognized by statute, regardless of whether those entities have a legal personality.
A. Joint venture
B. Joint control
C. Separate vehicle
D. Association

Answer: C
Q19: Difficult
Panda Corporation acquired 60% interest of the common stocks of Snake Corporation on Year
1. At the end of Year 2, Panda reported 560,000 net income and declared 80,000 dividends.
Snake, on the other hand had 460,000 net income and declared 50,000 dividends. During the
current year, Panda sold merchandise to Snake costing 130,000 and was marked-up at 25% of
cost. 50% of this inventory remained unsold at the end of Year 2. Merchandise sold by Snake to
Panda last year had a selling price of 150,000 with gross profit of 20% on sale which only 75% of
it were sold last year.
What is the consolidated net income attributable to Panda?

Ans: 794,250
Panda adj NI (560k-30k-16.25k) =513,750
Snake adj NI attributable to parent (460k+7.5k) x 60%=280.5k
(513,750 + 280,500)=794,250

Q20: Easy
A forward rate indicates the number of units of a currency that would be exchanged for one
unit of another currency on a given date. T/F

Ans: False